Applicability of SA 700 for the Tax Audits

SA 700 Forming an opnion and reporting on the financial statements.

1. In accordance with the SA 700 (Revised), Forming an opinion and reporting on the financial statements, the tax auditor should clearly mention the respective responsibilities of the assessee and the tax auditor. Form NO. 3CA and form No. 3CB are required to be filed online in preset form and the same are not in line with the requirements of SA 700. However as per the guidance note, having regard to the importance of these respective responsibility paragraphs from the perspective of the readers of the tax audit report, it is suggested that these respective responsibility paragraphs relating can be provided in the space provided for giving observations, etc., under clause (3) of Form No.3CA or Clause (5) of Form No.3CB as the case may be.

2. The illustrative paragraphs on Assessee’s responsibility and Tax Auditor’s responsibility in respect of Form No.3CB have been given in the Guidance Note. The same may be suitably reworded to meet the situation envisaged in Form No.3CA.

Hi CA Sumit,

You’ve raised an important point regarding SA 700 (Revised) compliance for Tax Audit Reports, specifically Forms 3CA and 3CB.

Applicability of SA 700 to Tax Audits & Forms 3CA/3CB

SA 700 Overview:
- SA 700 requires the auditor to form an opinion and clearly communicate respective responsibilities of management (assessee) and auditor in the audit report.
- This enhances transparency and helps users understand the scope and limitations of the audit.
Issue with Forms 3CA/3CB:
- These forms are prescribed by the Income Tax Department and are statutory for tax audits under Section 44AB.
- The forms are standardized and online-filed, with limited scope for customization.
- They do not explicitly include the detailed responsibility paragraphs as per SA 700.
Guidance Note Recommendation:
- The Guidance Note on Tax Audit (SA 700 applicability) suggests including the “Assessee’s responsibility” and “Tax Auditor’s responsibility” paragraphs within the “Observations” section of Form 3CA (Clause 3) or Form 3CB (Clause 5).
- This is a practical workaround to align statutory forms with SA 700 principles, while complying with the form’s structure.
- Illustrative wording for Form 3CB is provided; it can be adapted suitably for Form 3CA.

Practical Approach for Tax Auditors

Step	Descripttion
1. Prepare responsibility paragraphs	Draft clear statements of Assessee & Auditor responsibilities as per SA 700 guidelines
2. Insert in observations	Include these paragraphs in Clause (3) of Form 3CA or Clause (5) of Form 3CB
3. Maintain alignment	Ensure wording aligns with SA 700 but is concise and relevant to tax audit context
4. Retain documentation	Keep detailed responsibility statements in working papers for audit trail

Sample Responsibility Paragraphs (Brief)

Assessee’s Responsibility:
“The Assessee is responsible for maintaining proper books of accounts and records and for the preparation and presentation of the financial statements in accordance with the applicable laws and regulations.”
Tax Auditor’s Responsibility:
“Our responsibility is to conduct the tax audit in accordance with the applicable auditing standards and to express an opinion on whether the accounts comply with the provisions of Section 44AB of the Income Tax Act.”

Summary

SA 700 principles are applicable in spirit to tax audits.
Statutory forms 3CA/3CB do not mandate SA 700 paragraphs explicitly.
Guidance Note suggests including responsibility paragraphs in observations section.
This ensures transparency without breaching statutory form compliance.